Dollar slides as stocks stabilize

Quick Vote

What investment strategy will you follow for the rest of the year?

• Aggressively buying stocks
• Slowly adding more stocks
• Beefing up bonds and cash
• Not changing a thing

or View results

Click on the chart to see other currency prices.

NEW YORK (Reuters) -- The U.S. dollar fell broadly Tuesday as stabilizing equity markets in Europe and the United States eroded safe-haven flows into the greenback.

The euro jumped above $1.40 as financial markets awaited the outcome of a U.S. Federal Reserve policy meeting that concludes Wednesday and a record $104 billion in U.S. debt issuance this week.

Wall Street stocks slipped but showed an improved tone after Monday's biggest one-day loss in two months, encouraging investors to be a little less averse to risk.

"We have risk appetite back this morning, and the dollar is suffering on the back of that a little bit," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey.

The dollar has tended to fall when risk sentiment improves as investors move money away from safe-haven investments into riskier ones.

In midmorning trading in New York, the euro rose 1% against the dollar to $1.3996 after hitting a session peak of $1.4038, according to Reuters data.

The ICE Futures U.S. dollar index, which tracks the value of the greenback against a basket of major currencies, fell 0.7% to 80.297.

Concerns about reserve diversification away from U.S. assets also weighed on the dollar after Moody's cited as one risk to the United States' Aaa rating whether the dollar is challenged as the main reserve currency.

Moody's also said the U.S. rating is safe unless the government is unable to bring debt back down.

The dollar also fell against the yen, extending losses after an industry survey showed sales of previously owned homes in the United States rose at a slower-than-expected pace in May. The data pointed to a sluggish recovery from the severe economic recession.

"Overall it's weaker than expected but does show we're trying to carve out a bottom here," Oubina said. "I don't know that it's a green shoot. It seems to be more of a stabilization in the housing market."

The dollar last traded 0.4% lower at 95.50 yen near a three-week low just below 95 yen, according to electronic trading platform EBS.

The euro cut earlier losses against the yen to trade up 0.7% at 133.87 yen having earlier fallen as low as 131.41 yen, its lowest in a month.

The Federal Reserve's policy-setting Federal Open Market Committee will begin its two-day meeting on Tuesday, with a statement summarizing its decisions expected on Wednesday.

With no change in interest rates expected, investors will be watching closely to see what the Fed says about the economic outlook and its debt-buying program.

"If people want to position themselves ahead of the Fed meeting they are more likely to be short dollar, and that may have helped the euro," Standard Bank currency strategist Steve Barrow said.

Investors were awaiting a U.S. Treasury auction of $40 billion in two-year government debt, with results due just after 1 p.m.

Analysts believe the dollar is likely to stay under pressure before the U.S. bond auctions where weak demand could raise concerns about how the country will finance its huge deficits.